Why was there a savings glut in the 2000s?

When the equity market bubble burst, in the early 2000s, companies in many industrial countries cut down on borrowing funds to finance their capital expenditures. They began running financial surpluses that they lent to other sectors of the economy.

What are the effects of the savings glut on the loanable funds market?

But this time is different: the glut in savings supply is so large that banks cannot get rid of all the loanable funds even when they offer firms free loans—that is, even after they reduce the interest rate to zero, firms are not willing to borrow more in order to invest.

What does the global savings glut do to world interest rates?

First, the GSG hypothesis ties the drop in long-term real interest rates to excess saving outside the United States (and other Western countries) as reflected in large surpluses in the U.S. capital account.

Can excess savings lead to unemployment?

A savings glut must result in an increase in productive investment, an increase in the debt burden, or an increase in unemployment.

Is secular stagnation real?

The term secular stagnation refers to a market economy with a chronic (secular or long-term) lack of demand. Historically, a booming economy with low unemployment and high GDP growth (i.e., an economy at or above capacity) would generate inflation in wages and products.

How much savings does average person have?

And according to data from the 2019 Survey of Consumer Finances by the US Federal Reserve, the most recent year for which they polled participants, Americans have a weighted average savings account balance of $41,600 which includes checking, savings, money market and prepaid debit cards, while the median was only …

What is Bernanke’s “global savings glut theory?

That line of reasoning became known as Bernanke’s “global savings glut theory.” That argument ignores one very important fact: Most of the money those countries invest in the United States is not derived from “savings.” The money those countries invest is newly created fiat money.

Where have you heard about global saving glut?

Where have you heard about global saving glut? Global savings glut was first raised as a concept by Ben Bernanke in 2005 to account for the U.S. current account deficit. The theory has also been used to describe the state of China, Japan and Korea in recent years. What you need to know about global saving glut.

Is Bernanke playing the innocent bystander?

It is high time, Mr. Bernanke, instead of playing the innocent bystander, to acknowledge the chaos you have wrought. The global savings glut theory, embraced by no one more prominent than Ben Bernanke, the chairman of the U.S. Federal Reserve, attributes the global imbalances not to a U.S. propensity to overconsume.

Where did Governor Bernanke present similar remarks with updated data?

Governor Bernanke presented similar remarks with updated data at the Homer Jones Lecture, St. Louis, Missouri, on April 14, 2005. March 10, 2005 The Global Saving Glut and the U.S. Current Account Deficit